Daily Market Commentary

€
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2845 level and was supported around the $1.2775 level. Today’s intraday low was right around the 38.2% retracement of the $1.1880 - $1.3335 level and chartists are eyeing the $1.2875 level as the pair’s next upside target. Traders await tomorrow’s release of U.S. August non-farm payrolls data with many forecasts focusing on job losses of 100,000 last month. This week’s ADP private payrolls data were weak and it is likely the labour market contracted again in August. Many forecasts are also calling for an increase in the unemployment rate to 9.6% from last month’s print of 9.5%. An increase in the unemployment rate may reflect both new job losses and more people returning to the labour market seeking paid employment, a positive development. August average hourly earnings are also expected to decrease and economists will also pay close attention to average weekly hours. Data released in the U.S. today saw Q2 non-farm productivity worsen to -1.8% from the prior reading of -0.9% with Q2 unit labour costs up 1.1%. Also, weekly initial jobless claims printed at 472,000, down from last week’s total of 478,000, and continuing jobless claims came in at 4.456 million. Additionally, July factory orders were up less-than-expected at +0.1% and July pending home sales came in more-than-expected at +5.2% m/m and were off 20.1% y/y. August ISM non-manufacturing data will be released tomorrow in addition to the non-farm payrolls data. Federal Reserve Chairman Bernanke testified today and said banks should be closed if they threaten the financial system. He also defended the Fed’s decision to not bailout Lehman Brothers, arguing the Fed lacked the authority to save the firm. Boston Fed President Rosengren said a “holistic” approach is required to counter the housing crisis. In eurozone news, the European Central Bank kept monetary policy unchanged today as expected with its main refinancing rate steady at 1%. ECB President Trichet reported the eurozone economic recovery “should proceed at a moderate pace.” The common currency gained some ground earlier on news that Spain successfully sold €5.5 billion in five-year debt. The ECB is currently projecting GDP growth between 1.4% and 1.8% in 2010 and between 0.5% and 2.3% in 2011. Data released in the eurozone today saw Q2 gross domestic product growth of 1.0% q/q and 1.9% y/y, an increase attributable to upwardly-revised household consumption. Other data saw EMU-16 July producer price inflation up 0.2% m/m and 4.0% y/y. French data saw Q2 unemployment off 70,000 with the ILO umemployment rate lower at 9.7%. Euro offers are cited around the US$ 1.3240 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥84.00 figure and was capped around the ¥84.55 level. Traders continue to ponder the likelihood of yen-selling intervention amid ongoing verbal intervention from Japanese monetary authorities. Sources indicate Japan views foreign exchange volatility as a bigger issue than the yen’s current level. Some Japanese officials and some investment banks are calling on Japan to utilize unsterilized intervention to arrest the yen’s strength and leave extra liquidity in the financial system, essentially intervening and easing simultaneously. There is speculation Bank of Japan will delay any additional monetary easing until October at the earliest. The central bank’s decision to ease policy further earlier this week was made amid intense pressure from the government and it is possible the BoJ may be on the sidelines unless there is significant additional yen appreciation. BoJ Governor Shirakawa this week warned that downside economic risks may increase. Data released in Japan overnight saw the August monetary base climb 5.4% y/y. Data to be released tonight include Q2 capital spending. The Nikkei 225 stock index climbed 1.52% to close at ¥9,062.84. U.S. dollar bids are cited around the ¥84.60 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥107.45 level and was capped around the ¥108.30 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥129.15 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.40 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8077 in the over-the-counter market, down from CNY 6.8108. Data released in China yesterday saw August PMI manufacturing tick higher to 51.7 while the HSBC manufacturing PMI measured jumped to 51.9. Data to be released tonight include August non-manufacturing PMI and HSBC services PMI. Former People’s Bank of China adviser Fan Gang said the central bank should “gradually” adjust the money supply and slow the rate of money issuance. Fan also said China does not currently face an inflation risk. PBoC official Hu said the yuan needs to become more flexible. The recent weakness in the yuan suggests PBoC may be seeking to maintain a more stable yuan in relation to a basket of currencies and not just the U.S. dollar.

£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5350 level and was capped around the US$ 1.5460 level. Data released in the U.K. today saw August Nationwide house prices off 0.9% m/m and up 3.9% y/y while August PMI construction moved lower to 52.1. Data to be released tomorrow include August PMI services numbers. Bank of England’s Monetary Policy Committee is expected to keep monetary policy unchanged next week. Bank of England Chief Economist Bean spoke at Jackson Hole this past weekend and said “The deleveraging process is incomplete, the recovery remains fragile, and a considerable margin of spare capacity is yet to be worked off, while further policy action may yet be necessary to keep the recovery on track.” Bean also reported the central bank may impose policies to limit the ability of borrowers to take on riskier mortgage loans. Cable bids are cited around the US$ 1.5115 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8345 level and was supported around the £0.8280 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0095 level and was capped around the CHF 1.0185 level. Data released in Switzerland today saw Q2 gross domestic product up 0.9% q/q and 3.4% y/y while July retail sales were up 4.8% y/y. August consumer price inflation data will be released tomorrow. Swiss National Bank member Jordan this week said the central bank is closely monitoring the Swiss franc “very closely” and said Switzerland’s monetary policy situation remains “very complex.” Jordan also cited a “small” short-term risk of deflation. Some traders believe SNB may be forced to resume its franc-selling intervention to stop the euro’s sharp decline on the cross. U.S. dollar offers are cited around the CHF 1.0980 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2940 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5530 level.